Economic Perspectives - 04/24/26

The Census Bureau divides the US into nine divisions: New England, Middle Atlantic, South Atlantic, East North Central, West North Central, East South Central, West South Central, Mountain, and Pacific. Details of which states comprise each Census Bureau division are at the bottom of the Analysis section.

Let us start by examining the historical year-over-year inflation rate from 3/31/21 through 3/31/26. The chart below highlights four phases of inflation trends during this period. Phase 1 can be characterized as the synchronous surge phase from the Spring of 2021 to the Summer of 2022. All divisions saw a surge in inflation after the end of the pandemic crisis caused by fiscal and monetary policy stimulus creating excess demand for goods and services compared to the supply available. The spike reached its peak during the summer of 2022. As you can see in the chart below, all regions moved higher in sync, but the magnitude of the surge varied by division. The peak difference was 3.1 percentage points with the West South Central division at 10.6% and the Middle Atlantic division at 7.3%.

Phase 2 was the synchronous swoon phase. A sustained decline in the year-over-year inflation rate occurred between the Summer of 2022 through the Summer of 2023. Once again, all divisions moved lower in sync, but the magnitude again varied but narrowed.

Phase 3 was the “let's go our separate ways” phase that lasted from the Summer of 2023 until the end of 2025. During this phase, the divisional moves were not in sync. There was no clear trend other than a trend of variation as some divisions saw declines when others were rising and the other way around through this period. During this period there were only two divisions where the year-over-year inflation rate broke below the Federal Reserve's 2.0% target rate (West South Central and Mountain). Overall, this period saw inflation fluctuate between the range of 2% to 4%.

Phase 4 remains to be fully defined. Right now it can be characterized as the "is it the beginning of another swing higher?” phase. Since the end of the year, four divisions have seen consistent moves higher, two states were stable for two months and then moved higher in March and three states moved lower in February and then higher in March. All states now have a year-over-year inflation rate that is higher than the end of 2025. The magnitude of difference has also narrowed to 1.1 percentage points.

Since we have examined the movement of regional inflation, now, let us examine the percentage point change between years. this is a way of quantifying the changes in year-over-year inflation between years. The blue bars in the graph below highlight that during Phase 1, even though the West South Central division experienced the highest year-over-year inflation rate at 10.6%, the biggest percentage point increase in the inflation rate between 3/31/21 to 3/31/22 was the Mountain division. Its year-over-year inflation rose 7.9 percentage points while the East South Central division had the lowest increase at 3.9 percentage points. During Phase 2, the West South Central division had the biggest percentage point decline at 8.7 percentage points. The Middle Atlantic division experienced the smallest decline at 4.1 percentage points. During the next three years, inflation steadily decreased, but by a small amount, as each year progressed. During the past year (3/31/25-3/31/26) all divisions flipped back to a positive increase except the New England division. The Mountain division has experienced the biggest percentage point increase at 1.8 percentage points while the New England division experienced a 0.3 percentage point decrease. What this graph highlights are that the divisions move in the same direction, but the magnitude of move is clearly different. Different factors in each division impact the change in inflation. Each division has different local cost pressures, especially in services, housing-related categories, and shipping expenses that impact the magnitude of moves in inflation.



Next, let us examine the cumulative percentage point change in the year-over-year inflation rate since 3/31/21. This is the net change from 3/31/21 to 3/31/26. Keep in mind that because inflation rose and fell, the cumulative impact is the net result of all the movement. Examining the chart below highlights the longer-term difference in inflation between regions compared to monthly or yearly results. What the graph shows is that for all divisions except the East South Central division, inflation is higher than 3/31/21. The Middle Atlantic (1.8%) and New England (1.1%) divisions experienced the “hottest” inflation while the East South Central (-0.1%) showed the “coolest” inflation. What that means is that, compounded over the full period, the cost of living has risen roughly 22% to 26% across the nine divisions. 



Finally, let us examine where each division currently stands, based on the March CPI report. What we see from the chart below is that not only did the Middle Atlantic division suffer the biggest cumulative percentage point change (1.1%) it also has the highest current year-over-year inflation rate. Even though the East South Central division had a negative cumulative change (-0.1) it still has the second highest inflation rate. The West South Central division has the lowest year-over-year inflation rate. All but two divisions have inflation rates at 3.0% or higher and the other two divisions are close to 3.0%. Those are all levels that are essentially 1% or more from the Federal Reserve's target of 2.0%. We will need to monitor the changes that may occur the longer the war continues.

Conclusions